## What Your Client’s Board Gets Wrong About Leaving Delaware I have been in this meeting three times in the past year. Each time, the conference room had a view of Dallas. Each time, the momentum was already built before I walked in. The details change. The structure does not. The client’s board has been tracking the news. Tesla left Delaware. Coinbase’s chief legal officer wrote in the Wall Street Journal that Delaware’s legal framework “once provided companies with consistency. But no more.” Someone forwarded the article. Someone else mentioned the tax savings. By the time the reincorporation proposal lands in front of you, the momentum is already built. What the board wants is a lawyer to confirm the direction. What the board needs is a lawyer who knows what question the investment bankers did not ask. On December 19, 2025, the Delaware Supreme Court handed Elon Musk back his $56 billion pay package. In re Tesla, Inc. Derivative Litigation — the ruling that launched a hundred boardroom reincorporation conversations — was reversed in a 49-page per curiam opinion. The decision no longer stands. The companies that moved anyway are staying put. That tells you something about what they were running from. ### Who the DEXIT Movement Was Actually Built For Start with the data. A Harvard Law School governance review of the 2025 proxy season found that 55% of reincorporation proposals leaving Delaware involved companies with significant or controlling shareholders. Of the 16 companies that departed Delaware between 2024 and mid-2025, 10 were defined as “controlled” under Delaware’s own Senate Bill 21 — meaning the largest shareholder held at least 33% of voting power. Run the profile on the high-profile departures. Musk holds roughly 13% of Tesla stock but was found by the Court of Chancery to have exercised situational control over its board. Brian Armstrong co-founded Coinbase and remains its CEO. The Dillard family controls Dillard’s. Andreessen Horowitz, which reincorporated to Nevada in July 2025 and urged portfolio companies to consider the same, manages funds in which its partners hold controlling economics. Every major departure shares the same fingerprint. The Delaware doctrine that drove them out is called the entire fairness standard. When a controlling shareholder stands on both sides of a transaction — when a board approves an extraordinary compensation package for its dominant CEO — Delaware applies enhanced judicial scrutiny. The business judgment rule, which otherwise gives boards nearly unlimited deference, does not apply. The transaction must be entirely fair. The Chancery Court may rescind it entirely, as it did with Musk’s compensation award before the Supreme Court reversed the remedy in December. Texas Senate Bill 29, signed May 14, 2025, addressed this directly. It codified the business judgment rule in the Texas Business Organizations Code, limited stockholder derivative suits by requiring plaintiff holdings of up to 3% to bring certain claims, and strengthened director and officer exculpation provisions. Delaware responded with Senate Bill 21 in March 2025, clarifying standards for controlling-shareholder transactions and giving independent directors a stronger presumption of disinterest. MercadoLibre had obtained shareholder approval to reincorporate in Texas. After SB 21 passed, it withdrew the proposal. ***The DEXIT movement is a controlled-company escape hatch. It was engineered for companies with founder and family shareholders facing Delaware’s enhanced fiduciary scrutiny. Most of your clients are not those companies.*** Mid-market businesses, closely-held operations, operating companies where no single shareholder controls the board — none of them have approved $56 billion compensation packages. None of them are running related-party transactions that attract entire-fairness review. The fiduciary exposure that SB 29 protects against is not, for most of them, their primary legal risk. ### The Risk Nobody Is Discussing When a company reincorporates, it changes the law governing its internal affairs: director elections, board authority, shareholder rights, fiduciary duty. It also changes, less visibly, the body of precedent available when corporate disputes arise — including the precedent that governs what happens when a deal goes wrong. Lensabl, Inc. v. RBH SPE One, LLC (Tex. Bus. Ct. Nov. 5, 2025) is the case boards are not reading. Lensabl, an online eyewear company, signed a $29 million equity acquisition agreement. The buyer — controlled by Robert Byrnes — represented his entities were adequately capitalized. His own CFO warned him the representations were false. Byrnes directed the signing anyway. When the buyer failed to fund and Lensabl brought fraud claims, the court faced a threshold question: which law governed? The agreement contained a Delaware choice-of-law clause. The Texas Business Court overrode it. The court applied Texas’s “most significant relationship” test to the fraud claims — the purchasing entities were Texas entities, the defendants largely resided in Texas, the representations were made in Texas — and concluded that Delaware choice-of-law governed only breach-of-contract claims brought against the signatories under the agreement itself. The fraud claims were governed by Texas law regardless of what the parties had written. This is the assumption boards are making when they vote to reincorporate: that they can incorporate in Texas for governance and specify Delaware law in their contracts for everything else. Lensabl is a 2025 Texas Business Court opinion explaining why that does not hold. A Texas court will apply Texas law to the fraud claims. And Texas fraud doctrine in M&A transactions is, at best, uncertain. Goodwin Procter’s February 2026 analysis put it plainly: in Texas and Nevada, case law on M&A fraud claims is limited, and existing doctrine may suggest that fraudulent inducement claims in acquisition transactions do not exist in the same form they do in Delaware. When Goodwin’s attorneys asked Texas and Nevada practitioners how their courts would decide common M&A fraud issues, the answers were “we think our courts might follow the Delaware rules” — which is as far as they could go, because no case in Texas has settled it. Gibson Dunn’s May 2025 comparative analysis identified three additional gaps that touch every mid-market deal. On sandbagging — whether a buyer can recover on a representation breach it discovered during due diligence but closed anyway — Delaware says yes. Texas has no modern case confirming that rule applies. A buyer who found the problem before closing and said nothing may have no remedy. On material adverse effect clauses, Delaware has decades of decisions defining what triggers a walk-away right. Texas has almost none. On the statute of limitations, Delaware allows contractual survival periods of up to 20 years for representations-and-warranties claims. Texas’s four-year limit cannot be extended by agreement. A claim that surfaces five years post-closing may be dead on arrival in Texas. In Delaware, the same claim survives if the parties drafted their agreement to allow it. This is not a temporary gap. The Federal Circuit Court of Appeals was created in 1982 to rationalize patent doctrine and required two decades before its precedent became foundational. Delaware’s commercial law on M&A disputes is a 150-year accumulation. Texas is building something real. It is not there yet. ### The Case for Leaving Strong cases deserve straight statements. Texas has one. One clarification first: of the 18 companies that proposed leaving Delaware in the 2025 proxy season, 13 moved to Nevada, not Texas. Texas captured the high-profile names — Tesla, Coinbase, SpaceX, Dillard’s — and the policy momentum. Nevada captured the volume. That distinction matters for the argument, not against it: both states share the same M&A doctrine gap, and both benefit from the same governance narrative. Delaware imposes an 8.7% corporate income tax. Texas imposes none. Delaware’s franchise tax for large companies generates hundreds of millions in annual costs for companies that gain nothing operationally from the structure. Texas has a $2.4 million gross receipts threshold below which no franchise tax applies and a reduced rate above it. For a mid-market company paying Delaware franchise taxes without any operational presence in the state, the math is not subtle. Sullivan & Cromwell’s November 2025 review of Texas Business Court opinions noted they average under 19 pages and consistently invoke plain language as an interpretive standard. For companies whose agreements say what they mean and want courts to read them that way, that is a feature, not a deficiency. SB 29 and Delaware’s responsive SB 21 have substantially narrowed the governance doctrine gap for controlling-shareholder transactions. For a founder-led technology company with primary operations in Texas, a history of insider transactions, and meaningful activist shareholder exposure, the DEXIT calculus genuinely favors the move. The structural alignment between operational presence and legal home has real value that a balance-sheet analysis alone understates. Jury trials are also on the table. Delaware’s Court of Chancery is a bench-trial forum — one judge, no jury. Texas Business Court cases preserve the right to jury trial. For a company whose facts play better before twelve citizens than one chancellor, that is a meaningful distinction. Delaware is not standing still. Its 2024 and 2025 General Corporation Law amendments were substantial. ISS Governance data shows Delaware retains over 62% of U.S. public company incorporations. The gold standard has tarnished. It has not been replaced. ### Why the Gap Is Structural, Not Temporary Texas’s institutional limitations are not a product of youth alone. They are structural, and the structure clarifies how long the gap will persist. Business Court judges are appointed by the governor — the right design — but serve only two-year terms. Delaware’s Court of Chancery judges serve 12-year terms. Judicial independence is a function of tenure, not appointment alone. A judge writing a complex opinion on M&A fraud doctrine who faces reappointment in 18 months is not in the same institutional position as a judge with a decade of remaining tenure. Every election cycle introduces political risk into governance analysis that institutional investors and transactional counsel are not prepared to absorb. The legislative track record compounds the problem. Anti-ESG divestment mandates, proxy advisor restrictions, shareholder proposal ownership requirements — each intervention creates compliance obligations for companies incorporated in Texas that have no analog in Delaware. A company that publicly trades, files with the SEC, and employs people across multiple states now navigates Texas’s political governance choices as a condition of its legal home. Delaware’s Court of Chancery does not impose its legislature’s priorities on the companies before it. It adjudicates the disputes they bring. ***A legal infrastructure that serves only interests aligned with the current political majority is not a legal institution. It is a political instrument with a courthouse address.*** Delaware built authority by serving plaintiff shareholders and defendant corporations with equal rigor. The Federal Circuit built authority by serving patent plaintiffs and defendants with equal precision. That universality is not incidental. It is the source of the authority. Texas has the ground to build something equivalent. It has not yet built it. ### One Question Before Any Other When a client’s board presents a reincorporation proposal, the value-add is not a comparative ranking of Texas versus Delaware in the abstract. It is identifying which legal risks apply to this specific client and whether the proposed move changes the protection profile in their favor. One question does most of the work: Is this a controlled company with meaningful activist shareholder exposure? Controlled means a founder, family, or institutional shareholder holds sufficient voting power or board influence to attract Delaware’s enhanced fiduciary scrutiny. Meaningful exposure means the company has approved or is likely to approve transactions — related-party deals, extraordinary compensation, governance arrangements — that could draw derivative litigation. If yes, the DEXIT analysis has genuine merit. Run the tax comparison. Assess the post-SB 21 Delaware and post-SB 29 Texas governance doctrine gap. Evaluate the client’s M&A transaction history against the fraud doctrine it would be trading. The answer may still favor Texas. No controlling shareholder, no meaningful activist exposure: the client is buying protection against a risk it does not significantly face while accepting an M&A fraud doctrine environment that is underdeveloped for the acquisitions, earn-outs, and representations disputes most likely to generate its next piece of litigation. Franchise tax savings are real. For a company above the $2.4 million threshold, they may be material. Run that calculation separately, on its own merits, before letting it carry the governance analysis. ### The Map Was Drawn for Someone Else On December 19, 2025, the Delaware Supreme Court reversed the decision that started this. Musk got his $56 billion back. The companies that moved anyway stayed put. That is not a contradiction. It is a confession. The DEXIT movement was never really about what Delaware did to those companies. It was about what Delaware was capable of doing to them — what the entire fairness standard, applied by a sophisticated judiciary with tenured judges, could extract from a controlling shareholder who approved a transaction that was not entirely fair. Your clients need to know which side of that line they stand on before they vote. The map was drawn for someone else. Make sure it still points to where they need to go. *This blog provides general information for educational purposes only and does not constitute legal advice. Consult qualified counsel for advice on specific situations.* ### About the Author JD Morris is Co-Founder and COO of LexAxiom. With over 20 years of enterprise technology experience and credentials including an MLS from Texas A&M, MEng from George Washington University, and dual MBAs from Columbia Business School and Berkeley Haas, JD focuses on the intersection of legal technology, cybersecurity, and professional responsibility. Connect: LinkedIn: http://www.linkedin.com/in/jdavidmorris | X: @JDMorris_LTech | Bluesky: @JDMorris-ltech.bsky.social ### References In re Tesla, Inc. Derivative Litigation, No. 534, 2024, 2025 Del. LEXIS 492 (Del. Dec. 19, 2025). Tornetta v. Musk, C.A. No. 2018-0408-KSJM (Del. Ch. Jan. 30, 2024).

Originally published on LinkedIn Newsletter: The Technology Blind Spot